How Often Does Credit Scores Update: The Surprising Truth About How Often They Really Update!”
How Often Do Credit Scores Update?
Here is how it works. Your credit file includes all credit related data without a score. The credit bureaus will add or delete information from your file.
They do not know anything that is not reported to them. Your electronic file is updated once a month by the credit bureaus. The information received is voluntary, so lenders do not have to report their information to the credit bureaus at all. If they choose, they can report to all 3 bureaus or only 1.
When your credit is pulled, the computer software will calculate your credit score with the data on hand at that very moment. No one is watching your credit file or calculating your score on a daily basis.
Fair Isaac Corporation created their complex mathematical algorithm that is accurate in predicting the risk of approving credit most of the time. Currently FICO scores are the standard. When you see ads for free credit scoring check, you should know that they are not FICO scores unless it specifically states that credit scores are FICO credit scores.
If you happen to use a credit card monitoring service and it doesn’t say that you’re getting a FICO score, be prepared for there to be a difference of 50 -70 points the next time your credit is pulled.
I take it back, the only time that free credit scoring websites or credit monitoring services are okay to use, is when you are working on improving your credit.
You can use the score as a gauge of improvement. But just remember there will be a big difference from a lender or creditor receive. And you do not need any monthly subscription for a credit monitoring service.
FICO created industry specific scores to help lenders make better decisions. Auto lenders and credit card issuers look at some things differently to determine applicant’s creditworthiness. And the requirements for a mortgage are not as lenient as the requirements for a credit card.
Not all lenders use FICO’s credit scoring models. But the ones that do, determine what FICO version they use. When a new version is released, it is the lenders decision when they want to use the new updated version such as FICO score 10.
The most widely used versions are FICO Score 8 and FICO Score 9. The mortgage industry uses FICO Score 2, FICO Score 5, or FICO Score 4.
The credit score range for Transunion is based off of FICO’s credit score ranges. Experian range of credit scores and Equifax credit scores range are also based off of FICO’s credit scoring ranges.
What Is The Range For Credit Scores?
These ranges are from FICO Score 8 version:
[ 300 -580] — Poor
[ 580 -669] — Fair
[ 670–739] — Good
[ 740 -799] — Very good
[ 800–850] — Exceptional
How a Credit Score Is Calculated
There is 5 types of information that determine your credit score.
Roughly 35%: Collections, late payments, bankruptcies, judgments.
Roughly 30%: How much available credit is being used.
Roughly 15%: How long accounts have been open.
Roughly 10%: Type of credit- auto loan, credit cards, mortgage
Roughly 10%: Applications for new credit- hard inquiries
The credit system emphasizes on recent activity. A collection that is 5 years old is not going to affect a score as much as a late payment that just happened would.
I couldn’t tell you how many points you would lose or gain because your credit history is also a factor.
Someone who pays on-time, in full, keeps balances low would not lose as many points for a late payment as someone who carries over high balances month to month and has a late payment in the past will lose.
Your established patterns of credit and payment symbolizes the likelihood of making your payment on time, as agreed. It is very influential in calculating your credit score. The next most influential factor in calculating your score is revolving utilization.
There is installment credit and revolving credit. Installment credit has a fixed number of payments like an Auto loan or a personal loan.
Credit cards are considered revolving credit because as you’re paying the balance the credit line remains active. You earn more points if you have 2 credit cards and an installment loan versus 3 credit cards.
So back to revolving utilization, if the balance on your credit card is more than 30% of the credit limit you will lose points. If the balance is 50% or more, you lose more points. And if the balance is near the limit, the scoring system considers the card to be maxed out and that is very bad. You lose a lot of points.
This goes for each card you have. In addition to individually scored, the total of all your balances in relation to your overall available credit is scored. If the total balance is lower than 30% of your overall available credit you gain points. If the balance is 30% you lose points, over 50% you lose more points. 90% is considered to be maxed out, you lose the most points.
Example:
Visa cc limit= $2,000
Balance = $200
Percentage to limit = 10%
_________________________
MasterCard CC limit = $2,000
Balance =$1,930
Percentage to limit= 96%
__________________________
Sum of Both
Available Credit = $4000
Amount used = $2,130
Aggregate Percentage = 53%
___________________________
Visa credit card will gain points because it is at 10%. Mastercard will be considered “maxed out”. That will lose a lot of points.
Then the aggregate percentage is over 50%, so you would lose points for that also. But not as many points if your aggregate percentage was at 90%.
The experts recommend keeping balances under 10% individually and under 30% for aggregate.
It works the same way in reverse. The quickest way to earn a good number of points is to pay your balance down.
Here is what you do. First there are hard inquiries and soft inquiries. It is illegal for someone to pull your credit without your permission. Hard inquiries occur when you apply for a line of credit. The creditor pulls your credit to see if you’re creditworthy.
Or if you apply for a loan, the lender will pull your credit. Hard inquiries affect your credit score for 1 year, although they will remain on a credit file for two years.
Soft inquiries are when a creditor pulls their customers credit to see if they are making on time payments. If a creditor sees their customer has been making late payments with their other credit lines, they can assume that the customer is likely living above their means and the creditor will not be too far behind of seeing late payments for them.
They can decide to lower the credit limit or raise interest rates. But soft inquiries do not hurt your score.
Let’s say you’re going to be applying for a loan and you want the highest score you can get. Paying down a high balance to a low balance earns a lot of points.
If you pay on May 15th, the creditor reports on May 16th, the bureaus update on May 18th, but your credit was pulled on the May 17th. The lender pulling your credit will see a lower score than if he pulls your credit 1 day later.
If you Keep low balances, this information doesn’t matter, but if you want to raise your score when it is important for your situation this can help.
Creditors do not have a scheduled date to report their information. But typically, they will report when the bill is due, every 30 days. Then it can be any time from the same day or up to a week after, is when the credit bureaus will update their end.
You can call the creditor and ask what date they report to the bureaus. Knowing this allows you to be able to have your credit pulled so that the updates will show up. A week into the new month should be good timing to have your credit pulled in order for an update to show.
If you can’t pay down your balance, call the credit card company and ask them if they can raise your credit limit. The same result is achieved, your debt to limit ratio goes down and your credit score goes up. If you have been paying on time the creditor will usually agree.
Hard Money Lenders
Finance companies and cash advance loans are considered hard money lenders. Because they offer services to those who have bad credit. If they show up on your credit report, you automatically lose points. It doesn’t matter if you pay or paid on time. The credit bureaus assume you are hurting for money.
It is the same way with debt management companies and Consumer credit counseling. Stay away because lenders take that very seriously. In their eyes, it is no different than filing chapter 13 bankruptcy.
Because it shows that the borrower cannot manage their own money. You think they are helping but in reality, they will probably negotiate a lower payment. That breaks the terms of the agreement. You are not paying the full amount as agreed. So, every payment is going to be a late payment. Your credit score also drops for the company being added to your electronic file.
The more credit you have the riskier you become to lenders. Any more than three credit cards and you start losing points. At the same time if you have more than 3 credit cards, you do not want to close them because the minute you do, you lose the available credit for that card. The result is your utilization goes up. And it is very likely that as a result your revolving utilization will surpass 30% and you lose points.
It is important to note that your credit cards need to be active if you want to earn longevity points for them. Meaning you need to make a purchase at least once every 3 months on every card to keep it active.
Does Paying Off Collection Improve Credit Score?
You think this would help your credit score, but it does not. Unless you pay the entire debt owed, this is not a clever idea, if the statute of limitations is coming up, you are better to just let it age off your credit file. Keep in mind that again, no one is monitoring your credit file, so the collection may not age off automatically.
Remember that the credit system emphasis is on recent activity. The moment you pay a penny toward the collection. The accounts “date of last activity” is updated to being the most recent activity. And since it was not paid in full, such as a payment plan, it is now a late payment. And your score plummets.
Either let the collection age off, pay the entire balance off, or negotiate for a lower amount. Before you send a cashier’s check, make sure you receive an agreement that states “$xx.xx amount will be accepted as paid as agreed.” They will send a letter to the credit bureau reporting the account has been “paid as agreed” and have it removed. Once you receive the agreement, you can send the cashier's check or money order.
Be sure that you write on the cashier’s check or money order, “paid in full as agreed.” Maybe write it in the memo area, left hand side. Take a photocopy of the check and letter. Use a cover letter that states, “The collection must be deleted because I paid in full as agreed.” Send it to the bureau that reports the collection by certified mail.
Building Credit
I think that it is easier to be approved for a credit line if you have horrible credit, than if you have no credit. Sooner or later your creditworthiness is going to be requested.
And nowadays cash isn’t necessary for most transactions. How often do you pay cash for something?
So, I would say that everyone needs credit. But no one is given a credit score. You need to build up your credit file so that there is enough data to calculate a score.
However, without a credit history to help determine the risk of approving credit, lenders and creditors are not able to make a smart business decision.
With a bad credit history, the lender has something to base their decision on. The lender can choose to offer a loan with a high interest rate or deny the applicant.
If there is no credit history at all, the lender is going into the situation blindfolded, hoping that borrower will pay back the loan.
There will always be a lender that will give someone a chance to begin building a credit file, but they are far and in between.
What Should Someone With No Credit Do?
The first thing to do is decide on what name you will use on all financial and legal dealings. Will you use your middle name or first name. Or maybe first name, middle initial, last name. Do not use any nicknames.
It is not out of the ordinary for people with similar names to have information that doesn’t belong to them showing up on credit reports.
Does Being An Authorized User Build Credit?
This is a complex situation because a card issuer owns your information. They have their own policies about authorized users. Some lenders won’t report authorized user activity to the credit bureaus.
And the credit bureaus have their own policies about authorized users as well. For instance, if the primary account holder misses a payment, Experian will not include that information on an authorized user’s credit report. Although if the utilization is high on the account, it will damage the authorized user’s credit.
As an example, a parent gives permission for their child to become an authorized user. The child is issued a card to use. The age of the account, the limit, and the history is given to the child credit file to help build their credit. However, all the responsibility for the account falls on the owner of the account. You can see how this can be a good or a bad thing.
Credit utilization is crucial, it can help, or it can seriously damage credit. If the primary account holder has excellent credit, say 760 or better and maintains low balances, becoming an authorized user temporarily can be beneficial for the authorized user to start building credit.
A new credit file will be affected more for a high balance than an established credit file who has excellent credit and happened to make a large purchase.
Secured Credit Cards
Another option is to ask your bank for a credit card. With no credit history they may require you to open a secured credit card. Go ahead and open a secured credit card.
With these types of credit cards, you make a deposit. You can usually start with $500. That will be your credit limit. If you end up not being able to pay off your balance, your $500 will go to paying off the debt.
Use your card responsibly, making purchases you would normally make. When you make monthly payments, pay on time and the balance in full.
If you pay in full the interest rate won’t matter, only when a balance is carried over from month to month is when interest is tacked on to the principal. Keep the utilization under 10%, never go over 30%. After 6 months request to change to a standard credit card.
It takes one credit card opened for more than 6 months, used at least once in the past 6 months, without any dispute for being accurate to receive a credit score.
It takes 3 credit lines, opened for 12 months, never late on payment, always paid in full, carries low balances to earn a 740 top tier credit score.
You might want to “opt out”, this prevents consumer credit reporting companies to sell your information to credit card companies and offer you credit cards.
Because with great credit also comes many offers for credit cards. And the temptation of opening a new credit card is removed. And this has also been known to raise your score by 5 points. Not much but every point helps.
Opening 2 secured credit cards from the start is okay if your goal is to have a top tier credit score of 740+ as quickly as possible. You only need to make a $20 purchase, pay it off in full on one card.
The other card you can do the same thing or make purchases you would normally make. Such as toothpaste, milk, or cereal. Pay the balance off every time the bill comes. After 6 months, request to turn them into standard credit cards. Adding an installment loan will give you the most points.
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